CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities
Neha Industries borrows ₹10,00,000 at 9% p.a., interest calculated monthly on the reducing balance, with a fixed EMI of ₹20,000. How much of the second EMI goes towards repaying principal?
The principal part of the second EMI is ₹12,593.75. After the first EMI the balance is ₹9,87,500, so month 2 interest at 0.75% is ₹7,406.25. Subtracting this from the ₹20,000 EMI leaves ₹12,593.75 for principal repayment.
- A₹12,593.75Correct
- B₹12,500.00
- C₹7,406.25
- D₹12,687.50
Explanation
Monthly rate = 0.75%. Month 1 interest = ₹7,500, principal = ₹12,500, balance = ₹9,87,500. Month 2 interest = 9,87,500 × 0.75% = ₹7,406.25, so principal = 20,000 − 7,406.25 = ₹12,593.75. ₹12,500 ignores the fall in balance; ₹7,406.25 is the interest, not principal.
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